The Government would like all businesses to interact with it digitally, particularly where tax is concerned. Although most tax returns are submitted online, HMRC believes that humans make too many errors on those returns, so the ideal position would be for the business’s computer to talk directly to HMRC’s computer on at least a quarterly basis. This is the
essence of the making tax digital (MTD) project.
However, MTD has run into several political sandbanks, which has prompted a delay and a rethink. Now MTD for most businesses won’t commence until at least April 2020, but VAT reporting will be used as test – bed for MTD from April 2019.
Businesses who submit quarterly VAT returns will be required to use accounting software to submit their VAT figures directly to HMRC, without a manual step between the accounting system and the VAT return. This is a big ask, as many businesses need to do manual adjustments for matters such as partial exemption, overseas sales and schemes used by particular sectors such as farming. The accounting software producers don’t have long to come up with workable solutions.
The Minister has said the MTD system must be shown to work well before it is extended beyond VAT.